austin3515

According to the EOB: In a 2002 ASPPA Q&A with the IRS, the IRS suggested that you could use accrual basis to figure the top-heavy ratio, but that Sal doesn't think this is correct because a few other provisions would be "rendered meaningless" if this were the case. Nevertheless, if you can get a copy of that Q&A and it helps you out of a jam, it seems like you have a pretty good basis for doing so.

Has anyone heard any rumors regarding guidance from the DOL on PPA statements? I know it was mandated by August, but they were very public about the fact that they were going to miss that deadline. But we at least had something (that FAB) on participant directed plans. Any word on some guidance for the non-participant directed disclosures on participant statements? In particular, I'm hoping there will be some help regaridng the requirement to disclose the value of each investment held. I've got some pooled plans with over 100 individual stocks/bonds!

Well if we're really going to be thorough: 1) Reasonable Classification Test: Not applicable 2) Nondiscriminatory Classification Test: Must be passed for each individual rate group, substituting mid-point for "facts and circumstances." 3) Average Benefits Percentage Test: Must be passed for the Plan as a whole (well, controlled group as a whole, really).

IF any of the rate groups is less than 70%, then the average benefits test must be passed. The reasoning is exactly the same as in coverage (i.e., you fail the ratio percentage, you need the Avg. Ben Test). After all, rate group testing relies on very heavily on coverage testing rules (some small differences, like the use of the mid-point in the nondiscrim. class. test). But based on you last post, you seem to be indicating that your plan (as a whole) fails the ratio percentage test - not just one of the rate groups? Three follow-ups: 1) What is your COVERAGE ratio percentage 2) Are you testing based on allocation rates or accrual rates? 3) For EACH of the HCE's, what is their rate group's ratio percentage? Or is 45% for each of them?

Convoluted? They must be included unless they can be excluded as a class (i.e., individual on payroll of a third-party) and still pass coverage.

Mike - does that mean you agree with me?

See the IRS definition of a common law employee in publication 560: http://www.irs.gov/publications/p560/ch01.html It says (among other things) "A leased employee can also be a common-law employee. " Here's the IRS Revenue Procedure on PEO's I referenced. See Section 3.02. http://unclefed.com/Tax-Bulls/2002/rp02-21.pdf Is there still any doubt out there?

The leased employee rules in 414 whatever are totally trumped by an individual's status as a common law employee (as I defined this above). So no, my answer is unchanged. 414 whatever doesn't even come into play with respect to common law employees (no matter whose payroll they are on). Has no one besides me ever worked with ADP's PEO program?? ADP does this the way I'm describing.

Whcih in turn effects eligiblity for deductible IRA contributions...

mjb: The arrangement is, Dr. has a medical practice and doesn't want to be bothered with payroll/benefits, etc.. So he finds an employee leasing company to place his employees on their payroll, their benefits etc. The leasing company has no relationship with the individual employees, in that the Dr. alone hires them, and the Dr. alone fires them, and the Dr. alone determines their compensation, and the Dr. alone determiens how they will go about their job. The leasing company's primary role is to process payroll. I don't care what this is called in any contract, I don't care who the W-2 comes from, I don't care if they participate in the leasing company's 401(k) plan. They are the common law employee of the recipient. Therefore, any new plan of the Dr.'s must include them in coverage testing. I just remember the word for this: Professional Employer Organization. Do a google search, and you'll find volumes of information of how the IRS forced all of these PEO's to be treated as multiple employer plans for the exact reason stated by ak2ary (i.e., the exclusive benefit rule). The ADP TotalSource is a giant PEO, and they provide the services I described in my first paragraph. I also know that they administer their plan as a multiple employer plan. This is all due to the fact the ADP "employees" were all the common law employees of the recipient.

mjb: These "leased employees" can certainly be covered under the leasing company's 401(k) plan. However, if the arrangement is as I suggested, the leasing company's Plan is a multiple employer plan, and separate testing must be run considering only the Dr.'s employees.

I respectfully disagree. An employee leasing agreement will ensure that employees get a W-2 from the leasing company. However, determining eligiblity under a retirement plan is based on your status as an employee under common law. As I stated before, if the relationship with the leasing company ends when the Dr. fires the employee, they are a common law employee. No contract language will change that. My brother-in-law is a true leased employee. He works for a company that specializes in private labeling products for companies in a number of industries. HE works on site at his sole client for years at a time and appears to be a regular employee (has an office on site, reports up the chain of command at the client, etc). However, if his client no longer wants his services, he will be reassigned to another client. What's more, the leasing company determines his compensation. Therefore, he is not considered a common law employee of the recipient. He is indeed covered by the leasing company's retirement plan. Nevertheless, his client must consider him when performing coverage testing, treating him as not benefitting, pursuant to the employee leasing rules. This arrangement is also common for IT employees. This is VERY important stuff. I don't profess to be an expert, but it is VERY easy to get VERY burned if you don't know the rules!!

If these employees a) are in fact working for the Doctor on a full-time basis, and b) the Dr. can hire and fire these people at his/her direction (at which point the employees relationship with the leasing company ends) then what you got is common law employees (as opposed to leased employees) for purposes of administering a plan at least. If a) and b) are present, and the participants are still included in the leasing companies plan, then they should be administering the plan as a multiple employer plan (that is applying all nondiscrimination testing separately to this Dr.'s employee, without regard to other clients of the leasing company). However, there is nothing to stop the Dr. from not using the leasing company;s plan, and setting up his/her own safe harbor plan (unless there is something in the leasing agreement to the contrary, which would be surprising). By the way, the only distinguishing factor between a solo 401(k) and a regular 401(k) is the number of participants. Solo 401(k) is a marketing term only.

I don;t think this is a GAAP question. It's a legal question: "Which plan owns the assets?" I just can't see a way other than pro rata.

410(b) coverage rules is all that applies. As long as the plan passes coverage, the indidual can opt out and this will not affect the safe harbor status. Consider a) having the participant's waiver notarized (seriously), and b) consider requesting a psych evaluation (kidding).

That's a perfect example of why you should never criticize someone's fees without knowing the whole story. While I still believe a) the audit requirement is determined independently for each plan, and b) each person's account will need to be "audited" in total because the assets are not "earmarked" for each plan, I have the following amendment to my prior conclusions: Assuming there are over 100 FBO accounts, $15K is a bargain. Take it and run, and count your blessings.

Also, if the owner earns less than $180,000 (45,000 / .25) then he'll be able to save more under a 401(k) plan, because of course 401(k) is not subject to the 25% deduction limit.

Two plans in one brokerage account is NOT a master trust. I can't site the exact definition of a master-trust, but this is not it.

So $30,000 total??? That seems a little ridiculous. $15K for both audits I think would be a little high but in the ball-park. I would definitely be inclined to get some more quotes if it was me!

I'm with Kim. There is nothing wrong with two plans in one brokerage account, but this would certainly complicate the audit process. I mean, I guess they would really need to audit ALL of the assets, because each plan gets a pro rata share of the assets (versus earmarking different investments for different plans). This is alluded to briefly in the instructions to Schedule H. Something to the affect of "for investments from multiple plans commingled in one brokerage account, report each plan's pro-rata share of the investments on Schedule H.

Yes. But that's only an ADP safe harbor, so you need to run ACP test. If my calculator is working, that means the NHCE must contribute at least 5% (5% plus 2% = 7%), assuming all of the HCE's do the full 7%, in order to pass ACP.

OK, what do you do before forfeiting them? I certainly like that, and I agree with you about the 411 regs. It was actually Corbel who told me the prudent fiduciary would likely choose NOT to forfeit.

We've done some research and in light of the DOL's FAB, no one seems to think forfeiting is a very good idea. And as you point out, we need to keep track of this forever. By the way, the locator services is the first thing we tried, but does not always work. And "Yes" we lowered the cash-out to $1,000 for all of our clients. So Kim, even though a) the Plan is not terminating, b) your Plan doesn't provide for automatic rollovers and c) the balance is more than $1,000 (but presumably less than $5,000), you would still force them to a missing participant IRA after trying all four of the items in the DOL FAB? This is exactly what I want to do. Does anything other than brilliant logic apply to support your conclusions? (knowing that logic doesn't go very far!).

Is anyone out there opening "Missing Particpant IRA's" for particpants whose paperwork comes back return to sender and for whom "efforts to locate them" have come up dry? We want to start doing this, but I'm concerned because none of our documents provide for automatic rollovers in the first place. What are others doing about lost participants? We want to relieve ourselves of the issue as easily possible!

I didn't read the post closely enough - all I saw as that he wanted to switch from pro-rata to per-capita!